ExpertMedium1 markMultiple Choice
CPA · Question 46 · Area II: Entity Tax Compliance
A tax-exempt organization has $5,000 of UBI from advertising and $2,000 of directly connected deductions. It also has $1,000 of interest income. The specific deduction for UBI is $1,000. What is the Unrelated Business Taxable Income (UBTI)?
A tax-exempt organization has $5,000 of UBI from advertising and $2,000 of directly connected deductions. It also has $1,000 of interest income. The specific deduction for UBI is $1,000. What is the Unrelated Business Taxable Income (UBTI)?
Answer options:
A.
$4,000
B.
$3,000
C.
$2,000
D.
$5,000
How to approach this question
UBTI = Gross UBI - Deductions - Specific Deduction ($1,000). Exclude passive income like interest.
Full Answer
C.$2,000✓ Correct
IRC §512. <br/>Gross UBI = $5,000. <br/>Less Deductions = $2,000. <br/>Less Specific Deduction = $1,000. <br/>Total UBTI = $2,000. <br/>Interest income is generally excluded from UBI.
Common mistakes
Including interest income or forgetting the specific deduction.
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